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Zack Hutchins
Director of Communications

November 20, 2006

Court of Appeals rejects $5 billion plan for New York City schools

The state's highest court has drastically lowered the threshold for resolving the Campaign for Fiscal Equity lawsuit on financing New York City schools -- ruling that it would be "reasonable" to provide no more than $1.93 billion, in 2004 dollars. Lower court rulings had pushed a price tag of between $4.7 billion and $5.6 billion.

In a 4-2 decision issued Monday, Nov. 20, the Court of Appeals said that the lowest in a set of cost estimates put forward by Governor Pataki's Commission on Education Reform was "reasonable," and that therefore "the courts should defer to this estimate, appropriately updated." Under previous rulings by the high court, the cost of such a spending increase could be divided between the state and the city governments.

Still, the ruling leaves the Legislature and incoming Governor Eliot Spitzer free to increase spending on the New York City schools by more than that if they so desire -- though it frees them from any legal compulsion to do so. The ruling does not touch upon the funding of schools in other parts of the state.

Governor-elect Spitzer immediately indicated that he plans to address school funding for the city and statewide anyway, issuing a statement saying that "As I have repeatedly stated ... we must provide more statewide funding than this constitutional minimum, so that all of New York's schoolchildren have the opportunity to thrive in the 21st century workplace.... The Executive Budget that I submit in February will propose significant additional funding on a statewide basis as part of a multi-year plan. This funding will be tied to necessary reforms and accountability provisions to ensure that this money is spent wisely."

But the high court's decision means a huge change in emerging state budget and tax dynamics for the next several years. Fiscal planners at the Capitol had generally expected that a CFE settlement in the range of $5 or $6 billion would drive a hole in state finances that would make most other priorities, from tax relief to health care, more difficult to resolve. But a number in the range of $2 billion -- especially if phased in over three or four years -- would be much closer to the amounts by which the state and the city have been increasing school funding in recent years anyway.

In a partial dissent from the ruling, Chief Judge Judith Kaye and Judge Carmen Ciparick agreed that the courts should defer to any reasonable plan by elected officials to comply with the case. But they disputed the basis for the low-end $1.93 billion estimate and said it did not meet their test of reasonableness.

The majority opinion turned largely on a key aspect of the formula by which the Governor's commission, chaired by Frank Zarb, had tried to calculate the cost of providing a sound education -- its assumption that the necessary spending could be determined from the expenses of only the lowest-spending 50 percent of the successful school districts on which it based its calculations, rather than all of them.

This so-called "efficiency factor," though originally based on a plan by the state Board of Regents, was sharply disputed by CFE, the lower courts, and the dissenters on the Court of Appeals. But Judge Eugene F. Pigott, Jr., writing for the Court of Appeals majority, said that "The role of the courts is not ... to determine the best way to calculate the cost of a sound basic education in New York City schools, but to determine whether the State's proposed calculation of that cost is rational."

The ruling, available at http://www.courts.state.ny.us/ctapps/decisions/nov06/136opn06.pdf, is the fourth and, perhaps, final round in the high court's handling of more than a quarter of a century of lawsuits aimed at forcing New York State to send more money to the New York City schools.

The original lawsuit filed in 1978 claimed that the allocation of state aid to New York City was unfair and inequitable. But in 1982 the Court of Appeals ruled in that so-called Levittown case that there is no constitutional right to "equity" in school funding.

In 1993 the Campaign for Fiscal Equity filed a lawsuit based on the adequacy of the funding, not its equity. In 1995 the Court of Appeals agreed that the state constitution guarantees all children the right to "an opportunity for a sound basic education," and remanded the case to lower courts to try the question of whether the level of funding was denying them that right.

After a long trial, Supreme Court Justice Leland DeGrasse in Manhattan ruled in 2001 that the funding formula had deprived school children of their right to the opportunity for a sound, basic education, and ordered reforms in the funding of schools statewide.

The state then appealed, arguing that the problems of the city's schools were largely the result of mismanagement and underfunding by the city itself. In June of 2003, the Court of Appeals delivered its third ruling on the issue, holding that the state had the responsibility to fix the schools and giving the Legislature and the Governor until July of 2004 to come up with a plan for doing so. It specified that the state must first "determine the actual cost" of a sound, basic education; develop a funding formula to make sure the money was put in place; and implement accountability measures to ensure that the new money produced the intended results.

The Court of Appeals limited its 2003 ruling to the New York City schools, however, concluding that Judge DeGrasse's trial had heard no evidence about schools anywhere else. And it said that the state could require the city to put up some of whatever additional money was required, ruling that the specific share to be paid by each side was "a matter for the Legislature to determine."

To plan for compliance with the ruling, Governor Pataki appointed the Zarb commission, which estimated a range of spending increases needed -- a minimum of $1.93 billion, or higher if different assumptions about regional cost differences and the impact of high-poverty student bodies were used. The Governor submitted the commission's recommendations in the form of proposed legislation in July of 2004, meeting the Court of Appeals deadline. The Legislature, however, deadlocked on the issue -- with CFE and its supporters in the Legislature contending that much more money was required than the Zarb commission had recommended. So when the deadline passed without final action, the case went back to Judge DeGrasse for enforcement.

Judge DeGrasse appointed a panel of referees to review the various proposals for determining the dollars needed -- and, in February of 2005, accepted their recommendation that the proper amount was $5.63 billion (in 2004 dollars), the figure developed by the Campaign for Fiscal Equity in its own "costing-out" study. The lower-court judge rejected the 50 percent "efficiency factor" and other assumptions in the Zarb plan. His ruling was subsequently upheld in part by the Appellate Division, which added, however, that the extra cost might be lowered to $4.7 billion, based on a scenario proposed by the Governor.

The new Court of Appeals ruling, however, deferred to the right of the Governor and the Legislature to come up with a lower number as their final decision on the spending needed -- provided only that they have a rational basis for doing so. And it said that while a decision by elected officials might be arguable on the merits, it is the role of the courts to defer to the Governor and the Legislature on such matters as long as their action is a "reasonable" one.

"The need for deference, where appropriate, is no less important for this Court than it is for the Judiciary as a whole," Judge Pigott wrote in his majority opinion. "In fashioning specific remedies for constitutional violations, we must avoid intrusion on the primary domain of another branch of government.... We do not believe that Governor Pataki's proposed State Education Reform Plan was unreasonable. In particular, we do not find irrational the Governor's acceptance ... of the cost-effectiveness filter."